Why founders are better off staying away from partnerships

One major difference between partnerships and corporations is liability. In a GbR (Gesellschaft bürgerlichen Rechts) or OHG (Offene Handelsgesellschaft), you as the founder have unlimited liability with your private assets. This means that if your startup fails or gets into debt, creditors can access your house, your car or your savings. Your risk goes far beyond what you have invested in the company - a situation that can quickly threaten your existence in the start-up phase, when the financial risk is high anyway.

Another problem with the GbR: without a partnership agreement, external representation is not clearly regulated. This means that each partner can act externally on behalf of the company. The consequences of this action - whether intentional or unintentional - must then be borne by all partners. Imagine if one of your business partners concludes an unfavourable contract without your knowledge - then you will also foot the bill.

In addition, there is "joint and several" liability. This means that a creditor can seek compensation from a partner in the GbR and demand full compensation from this person. This shareholder must then subsequently claim the proportionate damage from the other shareholders. This not only leads to additional stress, but can also strain the cohesion of the founding team.

Raising capital is crucial for start-ups that focus on rapid growth and scaling. But no venture capitalist invests in partnerships. Why not? For one thing, there are no shares that investors can acquire. For another, the personal liability of shareholders is unattractive. Corporations such as the UG (Unternehmergesellschaft) or the GmbH (Gesellschaft mit beschränkter Haftung) are much more interesting for investors. Here, liability is limited to the company's assets and shares can be easily transferred, which facilitates financing and the entry of investors.

What is particularly tricky is that partnerships are often formed unintentionally. This is because a formal act of incorporation is not even necessary! For example, if we both go to the lottery office and decide to hit the jackpot and each of us puts in a few euros - poof, we have legally founded a GbR. Without realising it, we suddenly find ourselves in a form of company in which we have unlimited personal liability. This shows how quickly you can end up in a risky situation without realising it.

For founders who want to be on the safe side, we therefore clearly recommend the UG or GmbH. These corporations offer flexible structures, allow shares to be issued to investors and limit liability to the company's assets. This means your private assets remain protected and you can grow and scale your startup without any worries!

One example: If your startup takes out a loan and things don't go as planned, you are only liable with the company assets in a GmbH. Your house and your savings are not at risk. This is a clear advantage over a GbR or OHG.

If you want to be successful as a founder in the long term and minimise your risk, you should stay away from partnerships. Unlimited liability, the risks involved in external representation and the difficulty of raising capital make these types of companies unattractive for start-ups. Instead, opt for corporations such as a UG or GmbH - they offer you more security, flexibility and the best conditions for rapid growth and financing from investors.